Ambridge Investments Pty Ltd v Baker & Ors
[2010] VSC 59
•12 MARCH 2010
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
Commercial and equity division
No. 2014 of 2005
| AMBRIDGE INVESTMENTS PTY LTD (IN LIQUIDATION) (RECEIVER APPOINTED) (ACN 077 299 051) | Plaintiff |
| v | |
| THEODORE BAKER & ORS | Defendants |
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JUDGE: | VICKERY J | |
WHERE HELD: | MELBOURNE | |
DATES OF HEARING: | 5–7, 9, 13–15, 19–22, 26, 28–29 OCTOBER 2009; 9–10, 12–13 NOVEMBER 2009 | |
DATE OF JUDGMENT: | 12 MARCH 2010 | |
CASE MAY BE CITED AS: | AMBRIDGE INVESTMENTS PTY LTD v BAKER & ORS | |
MEDIUM NEUTRAL CITATION: | [2010] VSC 59 | |
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Joint Venture - Definition of “joint venture” - Conduct giving rise to implied agreement of joint venture – Equitable fiduciary obligations arising in negotiation towards a joint venture - Equitable fiduciary obligations arising in a joint venture – Statute of Frauds - s.126 Instruments Act1958 – No acquisition or disposition of land under joint venture agreement.
Equity – Entitlement to equitable relief – Discretionary factors – Conduct alleged not sufficiently related to Plaintiff’s cause of action – Claim for a declaration not a claim for equitable relief - Equitable fiduciary obligations arising in negotiation towards a joint venture - Equitable fiduciary obligations arising in a joint venture.
Estoppel – Alleged detriment out of proportion to relief sought.
Evidence – Admissions by conduct in a civil proceeding – Adoption of company accounts by directors - Conduct giving rise to implied agreement – Admissibility and use of post contractual conduct.
Practice and Procedure - Order 18 of Supreme Court (General Civil Procedure) Rules 2005 – Representative action - Whether applies to trust property – Prosecution of proceeding by plaintiff not in a representative capacity.
Trust – Creation of express trust by words and conduct
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J W Peters SC and Mr C G Juebner | Tress Cox Lawyers |
| For the First to Seventh Defendants | Mr P J Bick QC, Mr E W Altergren and Mr B Gibson | Rigby Cooke Lawyers |
TABLE OF CONTENTS
INTRODUCTION.............................................................................................................................. 1
The Litigation................................................................................................................................. 1
Ambridge’s Case – Unincorporated Joint Venture Including Ambridge.................................. 3
The Defendants’ Case – Incorporated Joint Venture Excluding Ambridge.............................. 5
The Rival Contentions Schematically Represented................................................................... 6
Issues for Determination............................................................................................................ 8
Relief Sought by Ambridge........................................................................................................ 9
The Concept of a “Joint Venture”............................................................................................. 10
The Share Structure of Break Fast............................................................................................. 12
Formation of the Joint Venture................................................................................................ 13
THE AMBRIDGE STANDING ISSUE........................................................................................ 13
THE DEFENDANTS’ AMENDMENT APPLICATION........................................................... 16
Declarations............................................................................................................................. 19
Connection Between Alleged Wrongful Conduct and the Subject Transaction..................... 25
Conclusion as to the Amendment............................................................................................ 28
THE PARTIES AND ASSOCIATED PERSONS....................................................................... 29
Ambridge.................................................................................................................................. 29
Stanley..................................................................................................................................... 29
Jacobs........................................................................................................................................ 31
Taylor....................................................................................................................................... 31
Baker......................................................................................................................................... 33
Voukidis................................................................................................................................... 34
Oxley........................................................................................................................................ 39
Break Fast................................................................................................................................. 39
McGrouther and IMF.............................................................................................................. 40
ADMISSIONS BY THE PARTIES................................................................................................ 40
CONDUCT WHICH MAY GIVE RISE TO A BINDING IMPLIED AGREEMENT.......... 47
THE JOINT VENTURE AGREEMENT CLAIM........................................................................ 56
Purchase of Wellington Parade................................................................................................. 56
The Incorporation of Break Fast............................................................................................... 62
Agreement as to Structure in Late 1999.................................................................................. 62
Significant Events of 2000.......................................................................................................... 64
Work Undertaken for the Joint Venture by Taylor on Behalf of Ambridge............................. 64
Jacobs’ Accounts...................................................................................................................... 65
Jacobs’ Accounts for Break Fast – Year 2000.......................................................................... 65
Voukidis Admission 14 July 2000........................................................................................... 66
Break Fast Accounts for June 2000.......................................................................................... 68
Joint Venture Agreements February – March 2000................................................................ 70
McGrouther Joins the Joint Venture June 2000...................................................................... 81
Timing of Agreement as to McGrouther’s Investment........................................................... 82
Timing of the Nomination of IMF as McGrouther’s Corporate Entity.................................. 83
Agreement as to the Holding of IMF’s Interest in the Project................................................ 85
Break Fast Notices of Beneficial Ownership............................................................................ 90
Joint Venture Agreement Development after July 2000......................................................... 93
Capital Contributions of the Partners –Year 2000.................................................................. 96
Significant Events of 2001.......................................................................................................... 96
Further Development of the Joint Venture Agreement........................................................... 96
Refinancing of the Project........................................................................................................ 98
Falsified Correspondence and Accounts.................................................................................. 99
Engagement of Mason Carter................................................................................................ 105
Stannards Prepare Break Fast 2000 Tax Return................................................................... 108
Baker Admission 30 June 2000 - Tax Deduction Claimed.................................................... 109
Expert Accounting Evidence................................................................................................. 110
Break Fast Accounts – Year Ended 30 June 2001................................................................. 112
Capital Contributions of the Partners – Year 2001............................................................... 114
Significant Events of 2002........................................................................................................ 114
Admission by Voukidis - July 2002....................................................................................... 114
Draft Joint Venture Agreement 8 October 2002.................................................................... 116
Stanley’s Dishonest Conduct of Break Fast........................................................................... 117
The Position of Baker and Voukidis in December 2002........................................................ 119
Position of Taylor and Headland............................................................................................ 126
Accounts of Break Fast in 2003................................................................................................ 130
Change of Position by Defendants 26 May 2004.................................................................. 130
Deed of Acknowledgement 8 July 2004................................................................................. 130
Conclusion as to Joint Venture Agreement Claim............................................................... 132
Preliminary Joint Venture Negotiation Phase..................................................................... 132
Informal Joint Venture Agreement Phase............................................................................ 135
Binding Joint Venture Agreement Phase.............................................................................. 136
Corporate Representative Joint Venture Agreement Phase................................................... 137
WHETHER THE AGREEMENTS WERE UNENFORCEABLE BY REASON OF THE STATUTE OF FRAUDS..................................................................................................................................... 143
Was there a Relevant Disposition?........................................................................................ 144
Statute of Frauds and Equity................................................................................................. 148
THE JOINT VENTURE IN EQUITY CLAIM........................................................................... 149
Whether in This Case a Fiduciary Relationship Exists Outside any Contractual Relationship 154
What Duties are Imposed on the Fiduciary Parties?............................................................. 156
Relief on Joint Venture in Equity Claim............................................................................... 157
THE TAUBER ESTOPPEL DEFENCE....................................................................................... 158
THE TAUBER GUARANTEE DEFENCE.................................................................................. 166
THE STANLEY BANKRUPTCY DEFENCE............................................................................. 168
THE OXLEY MORTGAGE DEFENCE...................................................................................... 168
CONDUCT OF STANLEY AND ESTOPPEL........................................................................... 169
RELIEF AND ORDERS................................................................................................................ 170
HIS HONOUR:
INTRODUCTION
The Litigation
This proceeding relates to a building situated at 176 Wellington Parade, East Melbourne (the “Wellington Parade Property”). The Wellington Parade Property was purchased at an auction on 24 November 1999 by the Sixth Defendant, Break Fast Investments Pty Ltd (“Break Fast”), for the sum of $6 million.
It was an attractive investment. The building is constructed in a reinforced concrete frame and slab design with aluminium framed curtain wall facades at the front (south) and rear (north) sides, and solid masonry walls on the east and west sides. The building has a ground floor which contained a café, together with eleven floors of office space and an open roof area. At the time of the purchase the building provided an opportunity for renovation and substantial growth in capital value.
At the time of the trial in October and November 2009, following its refurbishment, there were negotiations on foot to sell the property for $24.5 million.
How could such a seemingly successful commercial enterprise disintegrate into the tortured anatomy of this litigation? Perhaps the answer lies in the lines of Shakespeare’s Henry IV Part 2:[1]
See, sons, what things you are,
How quickly nature falls into revolt
When gold becomes her object.
[1] 2 Henry IV 4.5.64-6, Henry to Gloucester and Clarence.
There is no dispute that an enterprise, which I will neutrally call the “Wellington Parade Project”, was entered into to hold and develop the Wellington Parade Property. Indeed there was no dispute that the enterprise was a “joint venture”, which I will call the “Wellington Parade Joint Venture”.
The point of departure is as to the structure of the Wellington Parade Joint Venture. There was no written joint venture agreement signed by all of the parties who were the participating joint venture partners. The fundamental question for resolution in this part of the proceeding is: what was the precise ownership structure the parties put in place to serve their purposes?
There were a number of events leading up to the purchase of the Wellington Parade Property by Break Fast which are not in contention.
In late 1999, the Eighth Defendant, Mark Stanley (“Stanley”), met with the Second Defendant, Christos Voukidis (“Voukidis”), and the First Defendant, Theodore Baker (“Baker”), in a restaurant in Sydney. Voukidis, Baker and Stanley discussed a proposition to the effect that Stanley would look for a commercial property in Melbourne which could be purchased and leased to a company in which Baker had a substantial interest, Powerlan Technologies Ltd (“Powerlan”).
In early to mid November 1999, Stanley located the Wellington Parade Property and advised Voukidis of the find whilst the latter was on holidays in Queensland. The required capital contributions and the percentages of those contributions from the participating parties could not be known until after the property had been purchased and financing had been arranged.
The auction of the property was scheduled for 24 November 1999.
On 23 November 1999, Voukidis, who was Baker’s accountant, caused Break Fast to be incorporated. This he did through his accounting firm, Mason Voukidis. Each of Voukidis, Baker and Stanley were appointed directors of Break Fast. The paid up capital of Break Fast has at all times since its incorporation been $4, namely $1 per share issued. Two shares were issued to Baker, and one each to Voukidis and Stanley. Ambridge has never been a shareholder in Break Fast. Break Fast has never issued any further shares or raised any further share capital. From the date of its incorporation until about mid 2004, the ASIC records reflected that the shareholders of Break Fast held their shares beneficially.
On 24 November 1999, Stanley bid at the auction on behalf of Break Fast. The company was successful at the auction and purchased the Wellington Parade Property for $6 million. Garry Ganis (“Ganis”) was present at the auction. He was a former director of Powerlan. At the auction he represented Voukidis and Baker. Following the auction, he drew a cheque for $600,000 drawn on an account of a Powerlan subsidiary to pay the 10% deposit for the purchase.
The purchase was settled on 29 February 2000.
Ambridge’s Case – Unincorporated Joint Venture Including Ambridge
Central to the dispute is the claim by the Plaintiff, Ambridge Investments Pty Ltd (“Ambridge”) that the property was purchased by Break Fast in its capacity as the manager of what is commonly styled an “unincorporated joint venture”[2]. Pursuant to this arrangement it was contended that Break Fast would purchase and hold the property on trust for the participating joint venture partners. It says further that from the outset, Stanley’s company Ambridge was one of those participating joint venture partners and that it held and continues to hold a 25% interest in the joint venture.
[2]See: Fisher, S. “Formation and Structure” Chapter 4 in Duncan “Joint Ventures Law in Australia” 2nd edition at 146-148 [4.2.2].
It says that on 24 November 1999 there was an initial agreement between Baker, Voukidis and Stanley, pursuant to which:
(a)a joint venture would be formed to collectively work together to purchase the Wellington Parade Property;
(b)Break Fast would be incorporated to purchase the property as trustee for the participating joint venture partners and in its capacity as the manager of the joint venture;
(c)the participating joint venture partners were Baker and Voukidis (or their corporate nominees), and Ambridge;
(d)Directors would be appointed to Break Fast to represent Baker and Voukidis (or their nominees), and Ambridge; and
(e)Ambridge would be paid a fee of $500,000 for finding and managing the redevelopment of the property, and that the fee would be treated as Ambridge’s capital contribution to the joint venture.
Ambridge says further that, following nominations by Baker and Voukidis of the parties which were to hold their respective interests in the joint venture, as at mid February 2001, the joint venture agreement evolved to the point where the participating joint venture partners under it were:
(i) Ambridge as to a 25% interest;
(ii)Baker’s company, the Third Defendant, Careerpath Pty Ltd (“Careerpath”) as to 40%;
(iii)Voukidis’ company, the Fifth Defendant, C & O Voukidis Pty Ltd (“C & O Voukidis “) as to 25%; and
(iv)A company nominated by a later introduced person, Tod McGrouther (“McGrouther”), the Fourth Defendant IMF Pty Ltd (“IMF”), as to the remaining 10%.
Ambridge says that the terms of the joint venture agreement are to be found in conversations between the parties, correspondence passing between them, from the conduct of the parties and in order to give business efficacy to the agreement.
Other terms or fiduciary duties in equity are also said to be implied by which the parties were to act in good faith towards each other; not to use the property of the joint venture for unrelated purposes; to avoid conflicts of interest; and not to deny Ambridge’s interest in the joint venture. In other words it is said that the parties entered into a discrete joint venture agreement which was fiduciary in character.
If, contrary to its principal claim, there is no joint venture agreement as it alleges, Ambridge claims that:
(a)Break Fast and the participating joint venture partners are bound by the fiduciary obligations to which I have referred; and
(b)Break Fast holds a 25% interest in the Wellington Parade Property on constructive trust for Ambridge.
On Ambridge’s case, Ambridge holds the entire legal interest in its 25% share of the joint venture. However, it says further that pursuant to an arrangement entered into between Stanley and Gregory Taylor (“Taylor”) on or about 6 April 2000, a company associated with Taylor, Headland Properties Pty Ltd (“Headland”), acquired a beneficial interest in one half of the interest of Ambridge in the joint venture agreement. Thereafter, Ambridge continued to hold Headland’s 12.5% beneficial interest in the promises contained in the joint venture agreement on trust for Headland, but remained as the legal owner of its 25% interest thereunder.[3] It was not contended by the Defendants that Stanley was not entitled to deal with the interest of Ambridge in this way.[4]
[3]Court Book 441–442.
[4]Court transcript p. 235.
The Defendants’ Case – Incorporated Joint Venture Excluding Ambridge
As to the case of Baker and Voukidis, their respective corporate entities and IMF (the First to Seventh Defendants, collectively called the “Defendants”), they say that there was no such unincorporated joint venture as claimed by Ambridge. An “incorporated joint venture”[5] arose, which did not include Ambridge. They contend that between mid November 1999 and 23 November 1999, Baker, Voukidis and Stanley agreed to invest in the Wellington Parade Property pursuant to a shareholder agreement (the “Shareholder Agreement”). The terms of the Shareholder Agreement were said to be:
[5]See: Fisher, S. “Formation and Structure” Chapter 4 in Duncan “Joint Ventures Law in Australia” 2nd edition at 148-154 [4.2.3].
(a)Break Fast would be incorporated;
(b)It would acquire the Wellington Parade Property and would hold it beneficially;
(c)Each of Baker, Voukidis and Stanley would hold their interest in the property by means of their shareholding in Break Fast;
(e)Baker would hold a 50% interest in Break Fast by holding 2 shares; Voukidis would hold a 25% interest in Break Fast by holding 1 share; and Stanley would hold a 25% interest in Break Fast by holding 1 share;
(f)Each member would, in proportion to their respective shareholding, contribute capital to Break Fast, including for the purposes of acquiring, renovating and maintaining the property, with the initial capital contribution payable by each shareholder being determined on the basis of the price of acquisition of the property after its purchase;
(g)Each member would be entitled to any distributions paid by the company from profits earned, in proportion to their respective shareholdings; and
(h)Each of Baker, Voukidis and Stanley would be appointed a director of Break Fast and as a director would be entitled to participate in the management of Break Fast to the benefit of all members.
Upon its incorporation immediately prior to the purchase of the Wellington Parade Property, Break Fast issued a total of four shares, each with a paid up capital of one dollar. Two shares were issued to Baker, one to Voukidis and one to Stanley. It was therefore contended that there was no joint venture which included Ambridge, and as Ambridge had no shareholding in Break Fast, it had no interest in the Wellington Parade Property.
The Rival Contentions Schematically Represented
Schematically represented, the ownership structure established for the Wellington Parade Property contended for by the Plaintiff, Ambridge, looked like this:
On the other hand, the ownership structure established for the Wellington Parade Property contended for by the Defendants looked like this:
Issues for Determination
On the application of the Defendants at the trial, I made an Order on 6 October 2009 pursuant to Rule 47.04 of the Supreme Court (General Civil Procedure) Rules2005 that specified questions and issues raised in the pleadings be tried before the trial of other questions in the proceeding.
This step had the effect of confining the trial at this stage to questions of liability, leaving such matters as the taking of accounts, any breaches of any alleged agreement or duties, and damages, to be tried subsequently.
The questions for determination at this stage of the proceeding may be conveniently grouped in the following categories:
A.The existence of any joint venture agreement between the parties, the parties to any such agreement, the terms of any such agreement, and any duties which arose under any such agreement;[6]
B.If such a joint venture agreement did arise, is it enforceable given that it was not evidenced in writing or signed as required by the Statute of Frauds (s.126 Instruments Act1958) (Vic)?
C.Whether any joint venture arose in equity, and if so, what duties arose under such a joint venture?[7]
D.Whether Ambridge, by its knowledge of a transaction called the “Tauber Loan Agreement” and the securities pertaining to that transaction, is estopped from asserting that it has an interest in the Wellington Parade Property, and otherwise has no interest in the property?[8]
E.Whether Ambridge is precluded by the terms of a guarantee which it entered into as part of the Tauber Loan Agreement from asserting that it has an interest in the Wellington Parade Property, or by reason of the guarantee it should be denied equitable relief ?[9]
F.Further, it being common ground that Stanley was later bankrupted pursuant to a sequestration order made against him on or about 17 May 2005, the Defendants contended that, if Stanley had any interest in the joint venture through ownership of his share in Break Fast, any such interest now vested in his trustee in bankruptcy;
G.An issue also arose as to whether any interest which Stanley had in his share in Break Fast is now held absolutely by the Seventh Defendant, Oxley Group Finance Pty Ltd, by reason of an alleged mortgage of his share to that company;[10]
H.The Defendants contended further in their opening at trial, that in any event, on the Plaintiff’s case, given that Ambridge had declared a trust in respect of one half of any interest in a joint venture in favour of Taylor’s company Headland, it held only a 12.5% interest in the Wellington Parade Property for which it could sue. I shall deal with it as a preliminary point;
I.During the trial the Defendants made an application to amend their defence and counterclaim to introduce a claim that the Plaintiff Ambridge was not entitled to equitable relief by reason of its entry into a loan transaction (the “H2O Loan Agreement”) with Taylor’s company, The H2O Company Pty Ltd (“H2O”). I refused this application and publish my reasons below.
[6]Fifth Further Amended Statement of Claim paragraphs 1–13 (inclusive), and 15-20 (inclusive) and the defences thereto.
[7]Fifth Further Amended Statement of Claim paragraphs 31, 32, 33(a) and (d), and 35 and the defences thereto.
[8]Third Further Amended Defence and Counterclaim paragraphs 37-49 (inclusive) and the reply thereto.
[9]Third Further Amended Defence and Counterclaim paragraphs 50-56 (inclusive) and the reply thereto.
[10]Third Further Amended Defence and Counterclaim paragraphs 79-84 (inclusive) and the reply thereto.
Relief Sought by Ambridge
The relief sought by the Plaintiff, Ambridge, at this stage of the proceeding is as follows:
(a)A declaration that there is a joint venture agreement between the third Defendant (“Careerpath”), fourth Defendant (“IMF”), fifth Defendant (“C & O Voukidis”), Ambridge and the sixth Defendant (“Break Fast) as pleaded.[11]
(b)Alternatively to (a), a declaration that Break Fast holds a 25% interest in the Wellington Parade Property at 176 Wellington Parade, East Melbourne (the “Wellington Parade Property”), on constructive trust for Ambridge.
(c)A declaration that Break Fast holds the Wellington Parade Property as nominee and trustee for the joint venturers, including Ambridge as to its 25% share of the joint venture.
[11]To the effect alleged in paragraphs 7, 9 and 18 of the Fifth Further Amended Statement of Claim dated 13 October 2009 (the “SOC”).
The Concept of a “Joint Venture”
In this case, the contemporaneous use of the term “joint venture” at various times and in various contexts by the parties to describe the nature of the ownership structure which existed to hold and develop the Wellington Parade Property, is not conclusive in determining whether the structure contended for by the Plaintiff or that contended for by the Defendants is to be preferred.
As was said by the High Court in United Dominions Corporation Limited v Brian Pty Limited:[12]
The term “joint venture” is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing, money, property or skill. Such a joint venture (or under Scots’ law, “adventure”) will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried on through a medium other than a partnership: such as a company, a trust, an agency or joint ownership. The borderline between what can properly be described as a “joint venture” and what should more probably be seen as more than a simple contractual relationship may on occasion be blurred. Thus, where one party contributes only money or other property, it may sometimes be difficult to determine whether a relationship is a joint venture in which both parties are entitled to a share of profits or a simple contract of loan or a lease under which the interest or rent payable to the party providing the money or property is determined by reference to profits made by the other.
[12](1985) 157 CLR 1 per Mason, Brennan and Deane JJ at page 10.
An example of the use of the term “joint venture” arose from the email prepared and sent by Voukidis on 8 February 2001 to Baker and McGrouther.[13] This email was sent in the context of finance being sought in respect of the Wellington Parade Property from Colonial First State. Voukidis said in this email that he required firm details from Baker and McGrouther “of which entity or individual you would like to hold your interest in the Wellington Parade joint venture”. [Underlining added for emphasis]. This does not constitute an admission by Voukidis which is against the case he seeks to advance in this proceeding.
[13]Court Book p.339.
Statements of this type, considered without the benefit of any context which may explain the sense in which the term “joint venture” was used, are consistent with the characterisations of the ownership structure advanced by both the Plaintiff and the Defendants. A joint venture, properly called, may be constituted as an incorporated joint venture in which the participants become shareholders in a joint venture corporate vehicle. [14] Alternatively, it may be structured as an unincorporated joint venture having the characteristics of a partnership, with a separate legal personality, or it may simply be an association which does not exist as an entity separate from the legal personality of its participants. [15]
[14]See: Fisher, S. “Formation and Structure” Chapter 4 in Duncan “Joint Ventures Law in Australia” 2nd edition at 146-148 [4.2.3].
[15]See: Fisher, S. “Formation and Structure” Chapter 4 in Duncan “Joint Ventures Law in Australia” 2nd edition at 146-148 [4.2.2].
As to the terms of a joint venture, the authorities relating to joint ventures show that questions of whether or not a joint venture incorporates identified fiduciary duties, depends upon the facts of each individual joint venture.[16]
[16]See: Gibson Motor Sport Merchandise Pty Ltd & Ors v Robert James Forbes & Ors [2005] FCA 749 per Crennan J at [74].
In Gibson Motor Sport Merchandise Pty Ltd & Ors v Robert James Forbes & Ors[17] (“Gibson Motor Sport”), Crennan J, after considering the authorities, concluded that the “recognisable and common characteristics of joint ventures include”:
[17][2005] FCA 749 per Crennan J at [80– 81].
1.Participants hold proprietary interests in the assets of the joint undertaking, often, but not necessarily, as tenants-in-common.
2. Participants exercise joint control of the undertaking.
3.Participants contribute to the joint undertaking, not necessarily equally; such contributions may be disparate.
4.Participants in the joint undertaking enjoy rights and assume obligations, which are often several, and calculated by reference to ownership of shares and/or contributions made.
5.Participants have a joint (or community of) interest in the performance of the undertaking’s purpose.
6.Participants associate in the undertaking for mutual commercial gain which can be mutual profits.
These recognisable and common characteristics can be found in various permutations and constellations such that it is not appropriate to attempt to isolate which characteristics would be both necessary and sufficient for the constitution of a joint venture agreement. It is always a question of fact whether any particular undertaking constitutes a joint undertaking for mutual commercial gain.
Further, if reliance is to be placed upon a joint venture agreement being inferred from conduct over a period of time, as it is in this case by the Plaintiff, in order to constitute a binding contract, the conduct relied upon must be capable of providing all the essential elements of an express contract. See: the further observations of Crennan J in Gibson Motor Sport, citing McHugh JA in Integrated Computer Services Pty Ltd v Digital Corp (Aust) Pty Ltd.[18]
[18] (1985) BPR 11,110 at 11,117. In Gibson Motor Sport, Crennan J found that no joint venture agreement was concluded between the parties, their commercial relationship not proceeding beyond negotiations.
The Share Structure of Break Fast
The share structure of Break Fast is consistent with the characterisations of both the Plaintiff and the Defendants.
The fact that Baker was issued with two shares did give him greater voting power as a shareholder in the conduct of the affairs of the company. Under the constitution of Break Fast, on the taking of a poll at a meeting of members, a member is to have one vote for each share held.[19] The powers of members effected by resolution included the removal and replacement of directors.[20] This reflected his greater financial interest in the Wellington Parade Joint Venture.
[19]Break Fast constitution clause 63(2); New Supplementary Court Book p.11.
[20]Break Fast constitution clause 79; New Supplementary Court Book p.12.
However, this structure did not unequivocally point to the ownership structure of the joint venture contended for by the Defendants.
Formation of the Joint Venture
To the extent that the Wellington Parade Joint Venture arose from a contract, in order to have binding effect, the contract must satisfy the fundamental essentials under Australian law. Agreement upon essential and critical terms is a prerequisite of an enforceable contract.
The leading High Court decision on the point is Thorby v Goldberg,[21] where the Court observed:
It is a first principle of the law of contracts that there can be no binding and enforceable obligation unless the terms of the bargain, or at least its essential and critical terms, have been agreed upon. So there is no concluded contract where an essential or critical term is expressly left to be settled by future agreement of the parties.
[21](1964) 112 CLR 597 at 607 per Menzies J, with Owen J agreeing.
More recently, in an observation which is apt to the circumstances of this case, Weinberg J said in Alpine Hardwood (Aust) Pty Ltd v Hardys Pty Ltd:[22]
A promise or agreement is not legally binding and enforceable as a contract unless the requirements for the formation of contract, including consideration and certainty of terms, are satisfied. Not all contracts are negotiated and formally agreed. Contracts are frequently informal, with little specific negotiation.
[22][2001] FCA 1876 at [246].
THE AMBRIDGE STANDING ISSUE
The Defendants contended that Ambridge at best had a 12.5% beneficial interest in the Wellington Parade Property, the other 12.5% interest being held on trust by Ambridge beneficially for Headland.
It was further submitted that the proceeding was not commenced or prosecuted by Ambridge by its receiver as a representative action, and neither Taylor nor his company Headland are parties to the proceeding.
In these circumstances, the Defendants contended that Ambridge cannot recover an interest held on trust for the third party Headland, with the result that it can sue only in respect of its alleged 12.5% beneficial interest in the Wellington Parade Property, and not for the 25% interest which it presently claims. Ambridge may only recover its beneficial interest in the Wellington Parade Property, so it was said.[23]
[23]Court transcript p. 263; 1172-3.
They say further that Headland should have been joined so as to be bound by the result. However, it is now statute barred from bringing separate proceedings to recover any interest in the Wellington Parade Property.[24]
[24]Court transcript p. 263; 1172-3.
These claims were raised by the Defendants for the first time in the course of their opening at the trial,[25] and were not made in the Defendants’ pleadings.
[25]Court transcript p. 263.
It appears that the Defendants relied in part upon Order 18 of the Supreme Court (General Civil Procedure) Rules 2005 (the “Rules”), which by r.18.02 provides in respect of a proceeding by (or against) a representative:
A proceeding may be commenced, and, unless the Court otherwise orders, continued, by or against any one or more persons having the same interest as representing some or all of them. [Underlining added for emphasis]
However, r.18.01 specifically excludes Order 18 of the Rules from applying to property which is the subject of a trust. Rule 18.01 provides:
This Order applies where numerous persons have the same interest in any proceeding, but does not apply to—
(a) a proceeding under Part 4A of the Act;
(b) a proceeding concerning—
(i) the administration of the estate of a deceased person; or
(ii) property subject to a trust.
I do not accept the contentions of the Defendants.
Ambridge claims both a legal and an equitable interest in the subject matter of the Wellington Parade Joint Venture. It claims a legal interest in the contractual promises contained in the joint venture agreement which it pleads. [26] It also claims a beneficial interest in the Wellington Parade Property pursuant to an express trust of which Break Fast is the trustee. [27]
[26]SOC paragraphs 9(c); 17-20.
[27]SOC paragraphs 7(b)–(d); 10; 12.
Insofar as reliance is placed on Order 18, Rule 18.01 excludes its operation because Ambridge claims, inter alia, that Break Fast holds the Wellington Parade Property on trust for it and the other joint venture partners.
Further, the fact that Headland may have had a beneficial interest in Ambridge’s interest pursuant to arrangements between Ambridge and Headland does not require Ambridge’s proceedings to be brought in a representative capacity. Ambridge’s claim is also made in its capacity as the alleged owner of a legal interest in the Wellington Parade Joint Venture under the joint venture agreement which it pleads.
Ambridge is entitled to claim that it holds a beneficial interest in 25% of the Wellington Parade Property and a 25% legal interest in the Wellington Parade Joint Venture under the joint venture agreement. If the material facts support such allegations, and relevant discretionary considerations permit the grant of declaratory relief, the Plaintiff would be entitled to one of the declarations it seeks.[28]
[28]Being one or other of the declarations sought in paragraphs A–C of the prayer for relief in the SOC.
Further, the matter was only raised by the Defendants in submissions. It was not the subject of any application to amend their pleadings to plead the matters now alleged. The current defence and counterclaim[29] presents no pleading of any material fact or law alleging that Ambridge can sue only in respect of its alleged 12.5% beneficial interest in the Wellington Parade Property, and not for the 25% interest in the joint venture which it presently claims. Given the present state of the pleadings, which allege no material facts upon which the Defendants’ new contentions may be properly founded, in my opinion, it is not open to raise the allegations which they now seek to press.[30]
[29]Being the Third Further Amended Defence and Counterclaim dated 9 November 2009.
[30]See: r.13.02 Supreme Court (Civil Procedure) Rules 2005.
THE DEFENDANTS’ AMENDMENT APPLICATION
On 28 October 2009, on the twelfth day of the trial, the Defendants made application to further amend their defence and counterclaim. They sought leave to file and serve a Third Further Amended Defence and Counterclaim. I refused the amendment and indicated that I would deliver my reasons for doing so in these reasons.
The proposed Third Further Amended Defence and Counterclaim was drawn to introduce a claim that the Plaintiff Ambridge was not entitled to equitable relief by reason of its entry into a loan transaction (the “H2O Loan Agreement”) with Taylor’s company, The H2O Company Pty Ltd (“H2O”).
It was alleged in the proposed pleading that on or about 26 March 2003, Ambridge entered into the H2O Loan Agreement with H2O pursuant to which Ambridge borrowed the sum of $240,000 from H2O. The purpose of the H2O Loan Agreement was to pay out a loan (the “CBA Loan Agreement”) which Ambridge had taken out with the Commonwealth Bank of Australia (the “CBA”). The H2O Loan Agreement was secured in part by a second ranking registered debenture charge over the whole of Ambridge’s assets and its uncalled capital (the “H2O Charge”). It was pleaded in the proposed amendment that there were terms of the H2O Loan Agreement that:
(a)Ambridge would advance H2O the sum of $240,000;
(b)Interest on the principal sum was to be payable in the form of two QANTAS first class around the world airline tickets;
(c)The principal sum and interest was payable by Ambridge to H2O on demand, but no later than by 17 April 2003;
(d)Ambridge would pay to H2O interest at the rate of $10,000 per week for each week that the principal and interest remained unpaid after the due date;
(e)Ambridge would give H2O security, amongst other things, in the form of the H2O Charge and an assignment of an existing charge in favour of the CBA (the “CBA Charge”).
It was further pleaded that:
(a)On 27 March 2003, Ambridge discharged its indebtedness to the CBA under the CBA Loan Agreement in full;
(b)Thereafter the CBA Charge ceased to secure any sum. At settlement of the CBA debt, the CBA assigned the CBA Charge to H2O;
(c)On 17 August 2004, Ambridge was placed in liquidation by order of the Supreme Court of New South Wales, and a liquidator was appointed to the company. Then on 18 August 2004, H2O appointed a receiver of Ambridge pursuant to the CBA Charge which had been assigned to it;
(d)The H2O Loan Agreement was not repaid by Ambridge by 17 April 2003 and the debt with accrued interest, calculated in accordance with the terms of the H2O Loan Agreement, currently stands at approximately $4 million;
(e)It was further pleaded that the default interest rate under the H2O Loan Agreement was exorbitant and was a penalty, and at the time of entry into the H2O Transaction, Ambridge, to the knowledge of Taylor and H2O, was in financial difficulty and was unable to pay some of its debts as they fell due;
(f)It was pleaded that no reasonable person in the position of Ambridge would have entered into the H2O Loan Agreement or the H2O Charge (together called the “H2O Transaction”). It was said that the H2O Transaction was not at arm’s length and had the effect of substituting the CBA overdraft facility which was provided at the bank’s interest rate with the H2O Loan Agreement which charged an exorbitant rate of penalty interest;
(g)It was said further that there was “no benefit to Stanley, Ambridge or to its creditors, save for H2O and Taylor, in entering into the H2O Transaction”;
(h)It was pleaded that the H2O Transaction was an unconscionable transaction, and that it would not be consistent with equity or good conscience to permit:
(i)the receiver of Ambridge to represent the interests of one creditor, H2O, who relies on the penalty interest chargeable under the H2O Loan Agreement to disadvantage all other creditors of Ambridge;
(ii)Taylor and/or H2O to rely on the penalty interest chargeable under the H2O Loan Agreement to prosecute this proceeding in the name of Ambridge to the detriment of all other creditors of Ambridge; or
(iii)to permit the receiver of Ambridge to enforce and recover for the benefit of H2O a penalty being interest chargeable under the H2O Loan Agreement.
By reason of this conduct, it was pleaded that Ambridge is “not entitled to equitable relief in the proceeding”.
The Plaintiff Ambridge, in the proceeding as it presently stands, seeks relief in its Fifth Further Amended Statement of Claim (the “Statement of Claim”) to the following effect:
A.A declaration that there is a Joint Venture Agreement between Career Path, IMF, C& O Voukidis, Ambridge Investments and Break Fast …[to the effect pleaded].
B.Alternatively to A, a declaration that Break Fast holds a 25% interest in the Wellington Parade Property on constructive trust for Ambridge.
C.A declaration that Break Fast holds the Wellington Parade Property as nominee and bare trustee for the Joint Venturers, including Ambridge, as to its 25% share of the Joint Venture.
D.The taking of all necessary accounts ….as the Court considers appropriate for the purpose of taking accounts.
E.Damages (including exemplary damages) or equitable compensation.
F.An equitable charge or lien in favour of Ambridge over the interests of C & O Voukidis, Career path and IMF in the Joint venture and the Wellington Parade Property to the extent of any sum found to be due on the taking of accounts or any orders for damages or equitable compensation.
G.A declaration that Voukidis, Baker and Oxley holds moneys received (or their traceable proceeds), as to 25%, on constructive trust for Ambridge, alternatively, as to 100%, on constructive trust for Break Fast or equitable charge or lien in respect thereof.
H.An order that a receiver be appointed to manage the affairs of Break Fast or such other remedy to protect Ambridge as the Court deems appropriate.
I.Such further or other orders, directions or relief as the Court deems fit.
J. Interest.
K. Costs.
Declarations
Relief by way of a declaration does not depend upon and is not confined to claims for equitable relief. Further, although it is discretionary in nature, it is not a form of equitable relief.
As to declaratory relief, as was said by the High Court in Ainsworth v Criminal Justice Commission:[31]
It is now accepted that superior courts have inherent power to grant declaratory relief. It is a discretionary power which “[i]t is neither possible or desirable to fetter…by laying down rules as to the manner of its exercise”.[32]
[31](1992) 175 CLR 564 at 581–582.
[32]Citing Forster v Jododex Aust. Pty Ltd (1972) 127 CLR 421 per Gibbs J at 437.
In Forster v Jododex Aust. Pty Ltd[33] Gibbs J considered the jurisdiction of a superior court to grant declaratory relief. In that case a submission was made that the Equity Court in New South Wales had no jurisdiction to make the declaration sought, or if it did have jurisdiction the Court should exercise its discretion to decline to grant any declaratory relief. In New South Wales, the view taken originally was that the power to grant a declaration was appropriate in a suit in equity, namely a suit for equitable relief or relating to equitable rights and titles. This restrictive approach prevailed in New South Wales until the passing of an amendment to s.10 of the Administration of Justice Act 1924 (NSW) in 1965. Thereafter, the power of a judge sitting in equity to grant declaratory relief was broadened to the point where Gibbs J said in Forster: [34]
The jurisdiction to make a declaration is a very wide one. Indeed, it has been said that, … [under the relevant rule] the power of the Court to make a declaration, where it is a question of defining the rights of two parties, is almost unlimited; I might say only limited by its own discretion. [Citations omitted]
[33](1972) 127 CLR 421 per Gibbs J at 437.
[34]Ibid at 437.
Speaking extra curially in 2007, Justice RS French[35] in his paper “Declarations – Homer Simpson’s Remedy – Is there anything they cannot do?”[36] considered the function of a declaration. Noting its inherent flexibility and procedural simplicity, the following question was posited: “Well may we ask rhetorically of declarations as Homer Simpson asked of donuts – ‘is there anything they can’t do’?”[37] His Honour analysed the nature of the remedy in the following terms:[38]
… [The question is raised as to] whether a declaration is, strictly speaking, an exercise of power at all. A judicial declaration says something about something. It is a formal statement which may be of fact or law or mixed fact and law.
[35]Justice of the Federal Court of Australia, as he then was; now Chief Justice of the High Court of Australia.
[36]University of Western Australia – Faculty of Law – Perspectives on Declaratory Relief, 30 November 2007 p.2.
[37]Ibid at p.4.
[38]Ibid at p.2 See Young PW, Declaratory Orders (2nd ed, Butterworths, 1984) p 214.
In the same paper[39], his Honour noted that: “Importantly, it [a declaration] does not create rights capable of enforcement without a further order of the Court”. His Honour proceeded:
[39]Ibid pp.2–3.
As PW Young observed in the 2nd edition of his text, “Declaratory Orders”:[40]
[40]Op cit at p.214.
The enforceability of a declaratory order is the weak spot in its armour, as there is no sanction built into declaratory relief.
Zamir and Woolf put it thus in the 3rd edition of “The Declaratory Judgment”:
A declaratory judgment is a formal statement by a court pronouncing upon the existence or non-existence of a legal state of affairs. It is to be contrasted with an executory in other words coercive, judgment which can be enforced by the courts.
Nevertheless, declarations by courts have legal consequences. A declaration is not “a mere opinion devoid of legal effect”.[41] It “operates in law either as a res judicata or an issue estoppel and such an order is a final order for the purposes of appeal”.[42]
The absence of any coercive element in declaratory judgments is reflected in the difficulty of securing stay orders in relation to them. Again citing PW Young:
The effect of the court’s order is not to create rights but merely to indicate what they have always been … Because of this, if an appeal is lodged against a declaratory order, conceptually there can be no stay of proceedings.
[41]Zamir and Woolf, op cit at 1.07.
[42]Young PW, op cit at [213].
Thus it can be said that a curial declaration says something about something. It has a legal effect but otherwise does nothing.[43]
[43]Ibid, Justice French , Perspectives on Declaratory Relief at p.4.
In Victoria, the general jurisdiction of the Supreme Court is defined in s.85 of the Constitution Act1975, which provides:
(3)The Court has and may exercise such jurisdiction (whether original or appellate) and such powers and authorities as it had immediately before the commencement of the Supreme Court Act 1986.
(4)This Act does not limit or effect the power of the Parliament to confer additional jurisdiction or powers on the Court.
Section 36 Supreme Court Act 1986 provides for declaratory judgments. Rule 23.05 of the Supreme Court (General Civil Procedure) Rules 1986 is to the same effect. Section 36 Supreme Court Act provides:
A proceeding is not open to objection on the ground that a merely declaratory judgment is sought, and the Court may make binding declarations of right without granting consequential relief.
This provision is modelled on s.50 of the Chancery Procedure Act 1852 (UK) and its successor, O.25 r.5 of the Supreme Court Rules 1883 (UK).[44]
[44]See too: Supreme Court Act 1970 (NSW) s.75; Supreme Court Act 1995 (Qld) s.128; Supreme Court Act 1935 (SA) s.31; Supreme Court Act 1935 (WA) s.25(6); Supreme Court Rules 2000 (Tas); Supreme Court Act 1979 (NT) s.18. The declaratory remedy is also well entrenched in the Federal judicial system.
The matter was considered by the Court of Appeal in the early English case Chapman v Michaelson,[45] where it was held that, the grant of a declaration could not be considered to be a purely equitable remedy. Cozens-Hardy MR observed:[46]
The simple answer is that it is not equitable relief. It is a mere accident that the judgment has been given in the Chancery Division and not the King’s Bench Division, since this action might perfectly well have been brought in the Common Law Courts.
[45][1090] 1 Ch 238 (CA).
[46]Supra at 242.
In a proceeding in which purely declaratory relief is sought, as distinct from a proceeding in which a declaration is sought, for example, in aid of the grant of an injunction, which is of course itself a remedy in equity, a defence of unclean hands is no defence. This is so because the grant of a declaration is not the exercise of jurisdiction which is “truly equitable, it is merely statutory. If this be so, unclean hands is no defence to any merely statutory remedy”.[47]
[47]Meagher, Gummow and Lehane, Equity: Doctrines and Remedies, 4th ed, [3-135] at 102; See too: Lodge v National Union Investment Co Ltd [1907] 1 Ch 300; Ansford v Plymouth Finance Co Ltd [1933] NZLR 209; Re Gilbert (1946) 46 SR (NSW) 318; Tito v Wadell (No 2) [1977] Ch 106; Mayfair Trading Co Pty Ltd v Dreyer (1958) 101 CLR 428 at 450-6 cf. Hordern–Richmond Ltd v Duncan [1947] 1 KB 545 per Cassels J at 552; and Re Emery’s Investment Trusts [1959] Ch 410 per Wynn-Parry J at 422.
In AWB Ltd v Cole and Anor (No 2),[48] Young J expressed the position in the following terms:
It is a common misconception that a declaration is an equitable remedy. It is not; it is a statutory remedy that is conferred in terms emphasising that its grant or refusal is within the discretion of the court: see Tito v Waddell (No 2) [1977] Ch 106 at 259; 3 All ER 129 at 256; 2 WLR 496 at 636; Mayfair trading C Pty Ltd v Dreyer [1958] 101 CLR 428 at 454; [1959] ALR 104 at 117 per Dixon CJ; and RP Meagher, J Heydon and M Leeming, Equity: Doctrines and Remedies, 4th ed, Butterworths, 2002, at [19-159
While the refusal of declaratory relief on discretionary grounds will always be heavily dependent on the facts of the particular case, the discretion must be exercised within a framework of relevant legal principle. The cases afford guidance as to the way in which the discretion is to be exercised. In this sense, the question whether declaratory relief should be refused as a matter of discretion raises questions of fact and law, albeit heavily weighted towards the former.
[48](2006) 233 ALR 453 at [45] and [46].
The statutory remedy of a declaration may declare equitable, as well as legal rights. However, the mere declaration of equitable rights does not render the relief subject to equitable defences such as laches, unclean hands, hardship and refusal to do equity. This is so because the relief is a declaratory judgment which is made pursuant to the exercise of a statutory power.
On the other hand where a declaration is made which is ancillary to or part of equitable relief, the usual equitable defences may apply. Although the categories are not closed, two examples of such relief are: the grant of an injunction, where a declaration may be made in aid of the injunction; and secondly where a declaration is made as a means of imposing a constructive trust as an equitable remedy in the appropriate case.
Meyers v Casey[49] provides an example of declarations being sought in aid of an injunction. There the Plaintiff claimed: (a) A declaration that the stipendiary stewards or the committee had no power to disqualify him for suspicious practices in connection with the running of Blackpool; (b) A declaration that the decision of the committee dismissing the appeal was invalid and inoperative; (c) An injunction restraining the Victoria Racing Club, the stipendiary stewards, and the Moonee Valley Club from acting on or advertising the disqualification, and from hindering the Plaintiff from entering upon the Flemington Racecourse, or enjoying the privileges of his membership of the Victoria Racing Club thereon, or from entering any other course subject to the Rules of the Victoria Racing Club, and from ejecting the Plaintiff from Flemington or such other racecourse, and the like. The trial judge dismissed the action on the ground that the Plaintiff, in seeking the assistance of equity, did not come into Court with clean hands. On the appeal before the High Court, Barton ACJ dismissed the evidence as to the turpitude or integrity of the Plaintiff’s conduct, holding that it was not admissible on the case made. However, it is implicit that evidence of unclean hands, if it was available to be properly considered, could have been taken into account in determining whether to grant the relief sought, including the making of the declarations claimed by the Plaintiff.
[49][1913] 17 CLR 90 at pp.93–94 per Barton ACJ.
It is now well established that a declaration of a constructive trust may be used as an equitable remedy in the appropriate case. The remedial and equitable nature of a constructive trust was considered by Dean J in Muschinski v Dodds.[50] His Honour observed:
Viewed in its modern context, the constructive trust can properly be described as a remedial institution which equity imposes regardless of actual or presumed agreement or intention (and subsequently protects) to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle …
Once its predominantly remedial character is accepted, there is no reason to deny the availability of the constructive trust in any case where some principle of the law of equity calls for the imposition upon the legal owner of property, regardless of actual or presumed agreement or intention, of the obligation to hold or apply the property for the benefit of another (cf. Hanbury and Maudsley, op. cit., p.301; Pettit, op. cit., p.55).
[50](1985) 160 CLR 583 at pp.614; 616–7. See too the discussion in M. Cope Constructive Trusts (1992) Law Book Company at pp.15–17.
Further, as an equitable remedy, a constructive trust is available only when its grant is warranted by established equitable principles. Thus, there may be circumstances in which a Court will not impose a constructive trust even where a breach of duty to an identified beneficiary has resulted in an identifiable gain in the hands of a fiduciary.[51] Referring again to the discussion by Dean J in Muschinski v Dodds:[52]
Indeed, in this country at least, the constructive trust has not outgrown its formative stages as an equitable remedy and should still be seen as constituting an in personam remedy attaching to Wellington Parade Property which may be moulded and adjusted to give effect to the application and inter-play of equitable principles in the circumstances of the particular case. In particular, where competing common law or equitable claims are or may be involved, a declaration of constructive trust by way of remedy can properly be so framed that the consequences of its imposition are operative only from the date of judgment or formal court order or from some other specified date. The fact that the constructive trust remains predominantly remedial does not, however, mean that it represents a medium for the indulgence of idiosyncratic notions of fairness and justice. As an equitable remedy, it is available only when warranted by established equitable principles or by the legitimate processes of legal reasoning, by analogy, induction and deduction, from the starting point of a proper understanding of the conceptual foundation of such principles. [Citations omitted] Viewed as a remedy, the function of the constructive trust is not to render superfluous, but to reflect and enforce, the principles of the law of equity.
[51]Supra at p.294.
[52]Ibid at p.615.
Accordingly, the imposition of a constructive trust by declaration being an equitable remedy should reflect the principles of equity, including, where warranted, application of the classic equitable defences. The remedy of a declaration of a constructive trust may be lost by reason of the operation of such doctrines of equity, including unclean hands.
It follows that, in my opinion, the defence proposed by the Defendants in their Third Further Amended Defence and Counterclaim, which seeks to introduce a claim that the Plaintiff, Ambridge, was not entitled to equitable relief by reason of its entry into the H2O Loan Agreement with Taylor’s company H2O, if not for the privative consideration discussed below, could apply to some, but not all of the relief claimed in this part of the proceeding, provided the necessary facts are established. On this basis, the defence would not be open in respect of the Plaintiff’s claim for a declaration that there is a joint venture agreement between Career Path, IMF, C & O Voukidis, Ambridge Investments and Break Fast, and in my opinion, it would not be open in respect of the declaration sought by Ambridge that Break Fast holds the Wellington Parade Property as nominee and bare trustee for the Joint Venturers, including Ambridge, as to its 25% share of the Joint Venture. However it would be available in respect of the declaration sought to the effect that Break Fast holds a 25% interest in the Wellington Parade Property on constructive trust for Ambridge.
Connection Between Alleged Wrongful Conduct and the Subject Transaction
However, in my opinion, there is a flaw in the Defendants’ proposed defence founded upon unclean hands.
Although, as I.C.F. Spry puts it in Equitable Remedies 7th ed. at p. 169: ”The maxim that a Plaintiff in equity must approach the court with clean hands is, in truth, best understood as a statement that alludes to a number of distinct rules whereby particular conduct may lead to a refusal of relief”, it is well accepted that, in order for the defence to operate so as to justify a refusal of relief, it must be shown that there was such an “immediate and necessary relation” between the relief sought and the delinquent behaviour in question such that it would be unjust to grant that particular relief.[53] As I.C.F. Spry says further in Equitable Remedies:[54]
Indeed, to speak of a requirement of clean hands is misleading if it is intended to suggest an abstract moral examination of the actions of the Plaintiff. In no circumstances is an examination of this kind appropriate; …
To similar effect is the observation of Lord Brougham in Attwood v Small,[55] where it was said:
… general fraudulent conduct signifies nothing; that general dishonesty of purpose signifies nothing; that attempts to overreach go for nothing; that an intention and design to deceive may go for nothing, unless all this dishonesty of purpose, all this fraud, all this intention and design, can be connected with the particular transaction, and not only connected with the particular transaction, but must be made to be the very ground upon which this transaction took place, and must have given rise to this contract.
[53]Dering v Earl of Winchelsea (1787) 29 ER 1184 at p.1185; cited in Spry Equitable Remedies 7th ed. at p.169.
[54]Supra, Equitable Remedies 7th ed. at p.169.
[55](1838) 7 ER 684 at p.765.
The High Court considered the matter in Meyers v Casey.[56] Isaacs J observed in relation to the question, quoting from a leading eighteenth century case on the point Dering v Earl of Winchelsea:[57]
But the maxim [want of clean hands], even where the Plaintiff is forced to resort to equity for its assistance, has not an unrestricted application. In the leading case of Dering v Earl of Winchelsea 1 Cox, 318, at p. 319, Lord Chief Baron Eyre, with reference to an objection that the Plaintiff had been guilty of misconduct, said:- “It is not laying down any principle to say that his ill conduct disables him from having any relief in this Court. If this can be founded on any principle, it must be, that a man must come into a Court of equity with clean hands; but when this is said, it does not mean a general depravity; it must have an immediate and necessary relation to the equity sued for; it must be a depravity in a legal as well as in a moral sense.
Isaacs J continued:[58]
It is altogether different from the cases where the right relied on, and which the Court of equity is asked to protect or assist, is itself to some extent brought into existence or induced by some illegal or unconscionable conduct of the Plaintiff, so that protection for what he claims involves protection for his own wrong. No Court of equity will aid a man to derive advantage from his own wrong, and this is really the meaning of the maxim.
[56](1913) 17 CLR 90 per Isaacs J at pp.123–124.
[57](1787) 29 R.R. 1184 at p.1185.
[58]Ibid at p.124.
As noted by I.C.F. Spry in Equitable Remedies:[59]
It has been emphasised that it is not sufficient for the Defendant merely to show that the Plaintiff has been guilty of inequitable, or indeed, even of dishonest conduct, but it must be shown further, as was said by Scrutton LJ, that “the depravity, the dirt in question on the hand has an immediate and necessary relation to the equity sued for”.[60] So also it has been said that a refusal of relief on this ground may be appropriate “where the right relied on, and which the court of equity is asked to protect or assist, is itself to some extent brought into existence or induced by some unconscionable conduct of the Plaintiff, so that protection for what he claims involves protection for his own wrong”.[61]
[59]Supra, Equitable Remedies 7th ed. at p.494.
[60]Moody v Cox [1917] 2 Ch 71 at [87]–[88].
[61]Meyers v Casey (1913) 17 CLR 90 at 124.
In my opinion, there is no relevant connection between the conduct alleged by the Defendants in their proposed Third Further Amended Defence and Counterclaim and the interest in the Wellington Parade Property which Ambridge claims in the proceeding. It is not alleged, nor can it be alleged, that the conduct complained of by the Defendants in any way gave rise to the interest in the Wellington Parade Property which Ambridge claims in this proceeding. Furthermore, the Defendants, in their capacity as alleged debtors of Ambridge, are not in any position to deny their obligation to compensate Ambridge, assuming such an obligation exists, by raising matters of the kind referred to in their proposed Third Further Amended Defence and Counterclaim.
Further, insofar as the Defendants by their proposed Third Further Amended Defence and Counterclaim seek “relief against penalty and unconscionable conduct”, such claims relate to rights as between Ambridge and H2O. They do not relate to Ambridge’s claims against the Defendants.
The liquidator of Ambridge, pursuant to the powers vested in him by the Corporations Act 2001,[62] is empowered to manage the affairs of Ambridge. The suggested claim which Ambridge may have in respect of the enforceability or validity of the H2O Loan Transaction may only be raised by Ambridge, or the liquidator in control of the company. Any alleged debtors of Ambridge, such as the Defendants, have no standing to raise such matters. It is a matter for the liquidator of Ambridge to determine what rights if any, Ambridge may have as against H2O, and how the interests of the creditors are best served in pressing for recovery against it, if that is considered to be the appropriate course.
[62]See: sections 471, 471A, 471B, 477(1)(c) and 477(2)(a) Corporations Act 2001.
Further, and for these reasons, the matters pleaded are not, in my opinion, properly relevant to the exercise of the discretion to grant or withhold the declaratory relief sought.
In short, the matters pleaded do not have a sufficiently close connection between the inequitable behaviour alleged and the transaction or transactions which are the subject of the relief claimed in the proceeding, and it is not open to contend that they do. Further, there is no standing in the Defendants to raise the matters in the proposed Third Further Amended Defence and Counterclaim by way of defence to the claims made against them, or by way of counterclaim.
Conclusion as to the Amendment
For these reasons the proposed amendments to the defence could not provide a viable defence to this proceeding. It is a hopeless endeavour, and the amendment should not be permitted.
Furthermore, given the extraordinary lateness of the application to amend, in my opinion, even though it may have been possible to split the trial yet further to accommodate a separate trial of the amended defence sought to be agitated by the Defendants, it would not be consistent with the principles stated by the High Court in Aon Risk Services Australia Limited v Australian national University[63] to do so.
[63][2009] HCA 27.
The application of the Defendants to further amend their defence and counterclaim is refused.
THE PARTIES AND ASSOCIATED PERSONS
Ambridge
Ambridge is the Plaintiff in the proceeding.
Ambridge was in business of syndication of investments in film production partnerships, retirement development partnerships, and Wellington Parade Property syndication. It derived fees and commissions from those investments. About 80 to 90 per cent of its income was derived from tax minimization investment schemes and the balance of its income was derived from Wellington Parade Property investments. It targeted high net worth individuals as its clients.
Ambridge carried out initial feasibility work in assessing the suitability of the Wellington Parade Property as an investment prior to the auction, and after the purchase it undertook management and refurbishment work on the building in furtherance of the objectives of the Wellington Parade Joint Venture. It was also responsible for the preparation of the accounts for Break Fast until late 2002.
On 17 August 2004, Ambridge was placed in liquidation by order of the Supreme Court of New South Wales, and a liquidator was appointed to the company. Then on 18 August 2004, H2O appointed a receiver of Ambridge pursuant to the CBA Charge which had been assigned to it.
Stanley
Stanley was the sole shareholder and one of the two directors of the Plaintiff, Ambridge.
He is also the Eighth Defendant.
He was appointed a director of Break Fast from the time of its incorporation on 23 November 1999, until his resignation on 12 December 2002.[64] He was also issued one share in Break Fast, with a paid up capital of $1.00.
[64]Court Book p.565.
He was a charismatic character. He presented himself as a person of considerable wealth and financial success. He was accustomed to an unrestrained and lavish lifestyle which he conspicuously displayed. Between the early 90’s and 2004 he indulged in the use of the illegal addictive stimulant drug cocaine. He was convicted in 1996 for possession of the drug.
At the time of the trial Stanley was serving a term of imprisonment at the Fulham Correctional Centre, West Sale, Victoria. The sentence he is currently serving relates to convictions in the County Court of Victoria for theft arising from stealing approximately $2.5 million from investors in the Casey Downs Retirement Village between May 2003 and July 2004; stealing a further $268,000 from investors in the Casey Downs Retirement Village between November 2004 and May 2005; avoidance of payment of sales tax on the acquisition of luxury vehicles in the sum of approximately $884,000; and theft of $651,000 from Baker in respect of a GST refund in relation to a property development in New South Wales.
Stanley filed for bankruptcy on 17 May 2005. At that time, he had incurred debts of approximately $12.6 million and held assets consisting of a Cartier watch, antique furniture and artwork valued at approximately $63,000. In a report to creditors prepared by his trustee in bankruptcy dated 18 July 2005, it was noted that at the time of his bankruptcy Stanley was the director of 28 companies.
Stanley conducted the affairs of Break Fast and his dealings with his co-venture partners in a dishonest manner as hereinafter described.
Stanley’s evidence was central to the Plaintiff’s case.
I had the advantage of observing him giving his evidence under cross-examination over some two and a half days. I find Stanley to be an unreliable witness. I do not accept his evidence on contentious matters unless it is supported by cogent independent evidence which I accept or as to which I am otherwise satisfied on the balance of probabilities.
Jacobs
Graeme Jacobs (“Jacobs”) was employed by Ambridge as its general manager from May 1998 to July 2003. Further, from time to time between August 2003 and November 2003 he provided assistance to Ambridge. In his capacity as general manager of Ambridge, he was responsible for, amongst other things, the preparation of its financial statements and the administration of Ambridge’s participation in a number of property development projects. He had a key role in the preparation of the accounts for Break Fast, at least until late 2002. He also assisted in the giving of instructions to solicitors for the preparation of draft joint venture agreements for the Wellington Parade Joint Venture. In various his roles with Ambridge, he took instructions from Stanley. In some of his correspondence, he described himself as the “Financial Controller” of Ambridge.
Jacobs was a chartered accountant and a member of the Institute of Chartered Accountants. He had conducted an accounting practice for 16 years until 1993.
In 1993 Jacobs pleaded guilty in the County Court of Victoria to a charge of theft arising from his conduct in misappropriating client funds in the course of his practice and was sentenced to two years’ imprisonment which he has now served.
Jacob’s evidence was also central to the Plaintiff’s case.
I had the advantage of observing him giving his evidence under cross-examination over some one and one half days. I approach the evidence given by Jacobs in this proceeding with caution.
Taylor
Taylor is a solicitor holding a current practising certificate. He is also a property developer.
Taylor is the sole director and shareholder of Headland. For some years prior to 1999, Headland and Stanley’s company Ambridge had been involved in various property projects together. There was evidence that for a period of time, Taylor was a friend of Stanley’s.[65]
[65]Court transcript p.347.
Taylor acted on behalf of Ambridge and assisted it in undertaking much of its management and refurbishment activity in relation to the Wellington Parade Property.
I am satisfied that the other joint venture partners were not aware of Taylor’s participation in the Wellington Parade Joint Venture until December 2002.
Taylor is also registered in the records of the Australian Securities and Investment Commission as a director of Break Fast as from 12 December 2002 upon Stanley’s resignation. Baker and Voukidis take issue with this appointment.
The Defendants were critical of a number of aspects of Taylor’s credit in this proceeding.
The principal matter highlighted by the Defendants involved the H2O Loan transaction, which has already been described. As part of the loan transaction a charge was assigned to H2O by the original lender, the CBA, upon its loan being discharged. Taylor caused H2O to appoint a receiver to Ambridge and has funded the bringing of this proceeding. H2O, and through it, Taylor, have an interest in recovery of debt now said to be owing under the H2O Loan agreement, claimed to be about $4 million.
Other matters involving Taylor’s management of documentation in business affairs with Stanley and his accounting practice applied to his trust account were also brought into question by the Defendants.
As things developed in the course of the Wellington Parade Joint Venture, Taylor took a dislike to both Baker and Voukidis. This manifested itself in the course of him giving evidence.
Taylor is also the person who stands behind Ambridge in the present litigation and has a direct interest in the outcome. Further, by reason of the H2O Loan and the security held by H2O over Ambridge in respect of it, his interest extends beyond the claimed interest of Headland in Ambridge’s alleged share of the Wellington Parade Joint Venture. I assess Taylor’s evidence with these matters fully in mind.
However, having taken these matters into account, I am satisfied that Taylor was a witness of truth in giving evidence as to the central matters in dispute in this proceeding.
Baker
Baker is the First Defendant.
He was appointed a director of Break Fast from the time of its incorporation on 23 November 1999 and remains a director of the company. He was also issued two shares in Break Fast, with a combined paid up capital totalling $2.00.
He is a successful and astute businessman. He is the managing director of CL Asset Holdings Ltd (formally known as Community Life Limited), a company listed on the Australian Stock Exchange. He is also a director of a number of other companies. Up until 24 August 2009 he was a director of Careerpath, the Third Defendant.
Baker started an information technology company, Powerlan Technologies Pty Ltd, in September 1992. It was listed it on the Australian Stock Exchange in September 1999 when it became Powerlan Limited (“Powerlan”). It had a market capitalisation of $70 million. Following the float, Powerlan made approximately 30 different acquisitions of companies in the course of expanding its information technology business. As a result of these acquisitions, Powerlan became a significant business in Australia and Asia, with offices in all Australian capital cities as well as 12 offices in Asia including in Hong Kong and China. The companies acquired by Powerlan included software development companies, IT recruitment companies, IT training companies and other IT businesses.
Baker was first introduced to Stanley in 1998 at a seminar presented by the Village Road Show Production Company. The seminar was the promotion of an investment opportunity in a film being produced by Village Road Show known as “Three Kings” which was said to have had significant tax benefits.
I found some key aspects of Baker’s evidence to be unsatisfactory.
Voukidis
Voukidis is the Second Defendant in this proceeding. He is also a director of the Fifth Defendant, C & O Voukidis Pty Ltd and the Sixth Defendant, Break Fast.
He was appointed a director of Break Fast from the time of its incorporation on 23 November 1999 and remains a director of the company. He was also issued one share in Break Fast, with a paid up capital of $1.00. Since 23 November 1999, he has been the company secretary of Break Fast.
In or about 1993, Baker met Voukidis. They developed a business relationship. Powerlan Technologies began engaging Voukidis to do accounting work on its behalf.
Voukidis, was an experienced taxation accountant. In or about 1994, Voukidis commenced practice in his own accountancy firm known as Mason Voukidis Chartered Accountants (“Mason Voukidis”). His firm, Mason Voukidis, was a general accounting practice which included the provision of services to its clients in the areas of taxation, accounting and audit. A number of his clients were high net worth individuals. From time to time some of those clients would ask to be involved in tax effective investments.
Since about 1994, Baker was a personal client of Voukidis and his firm. Voukidis undertook all of Baker’s personal taxation work and provided him with accountancy and investment advice. Voukidis also dealt with all taxation and accountancy matters for Baker’s company, Powerlan.
In or about mid 1999, Powerlan Technologies was preparing to list on the Australian Stock Exchange. It needed to engage a Chief Financial Officer. Voukidis was appointed to the position and left Mason Voukidis to assume his duties with Powerlan Technologies. Voukidis was also appointed a director of Powerlan Technologies.
In so doing, I accept that Stanley represented to Tauber, through its solicitor Czarny, that his share in Break Fast was an asset of realisable value. I accept that Stanley also represented to Czarny that the Wellington Parade Property was held by Break Fast beneficially (rather than in an unincorporated joint venture) and that Stanley himself (and not Ambridge) held an interest in the Wellington Parade Property by means of his shareholding in Break Fast. I also accept that on the basis of these representations, Czarny prepared loan and security documentation, which was executed by Stanley, to give effect to the Tauber Loan to St Leonards, which included as an additional security the mortgage of Stanley’s share in Break Fast as part of the security for that loan. The mortgage of the share was executed by Stanley on 23 November 2001.
The loan was duly settled, with the sum of $840,000 being advanced to St Leonards. An interest rate of 21% per annum was agreed, with a higher default rate settled at 26%.
The Tauber Loan was accounted for in the St Leonards Joint Venture as Stanley’s personal equity contribution to that joint venture. Accordingly, Stanley assumed liability for the loan as between his co-joint venturers.
Sometime thereafter, Stanley defaulted under the Tauber Loan. On 2 July 2004 the lender, George Tauber Management Pty Ltd, assigned to the Seventh Defendant, Oxley Group Finance Pty Ltd (“Oxley”), its rights under the Tauber Loan Agreement, Deed of Guarantee and share Mortgage for the sum of $1,054,155.31, which was the debt owing under the Tauber Loan at the time. Oxley was incorporated on 16 January 2004 and has been at all times since then under the control of Voukidis, who remains as its sole director. The shareholders of Oxley are the parties to the St Leonard’s Joint Venture, which include Baker, Voukidis, Mr Anastasopoulos and a Mr John Crotti.
By the deed of assignment between Tauber and Oxley of 2 July 2004, the Tauber mortgage was transferred to Oxley on that date. Tauber therefore obtained the beneficial interest in the Stanley share with a right to register the legal interest with the Australian Securities and Investment Commission (ASIC), leaving Stanley with an equity of redemption. The transfer was perfected when Oxley subsequently registered its legal ownership of the share in Break Fast with ASIC. In this way, Oxley, which was under the control of Voukidis, became the legal owner of Stanley’s share in Break Fast, subject to Stanley’s equity of redemption under the Tauber mortgage.
However, it was not with a view to gaining further control of the Wellington Parade Property through acquisition of the mortgage of Stanley’s share in Break Fast that Voukidis and Baker, through Oxley, proceeded to take the assignment of the Tauber Loan Agreement and its securities on 2 July 2004. Their purpose was altogether different. Mr Voukidis’ evidence in re-examination explained Oxley’s position. It was as follows:[282]
MR BICK:On that last topic, Mr Voukidis, why did Oxley pay out Tauber? ---Mr Tauber was agitating and threatening. It would have – it ultimately would have created – Mr Tauber's demands for repayment were quite forceful and it was creating a breach of our debt covenants with CFS.
Yes?---There was a demand issued by Mr Tauber for repayment as well.
Thank you. And I'll take you to another topic.
[282]Court transcript pp.1611-1612.
It was submitted by the Defendants that as Ambridge was Stanley’s company and Stanley was the sole shareholder, a director, and the controlling mind of Ambridge at the time the Tauber loan and mortgage were entered into, Ambridge is to be taken to have knowledge of, and to have consented to, the representations made by Stanley to Tauber (through Czarny) and to his entering into the Tauber loan and mortgage. Even if this was not the case, it was submitted that, as Ambridge itself had provided a guarantee in respect of the Tauber Loan, it must be taken to have knowledge of the representations made.
It was further submitted that to permit Ambridge to now deny that Break Fast held the Wellington Parade Property beneficially would undermine the security obtained by Tauber and then Oxley for value. In the result, it would be against equity and good conscience to allow Ambridge to now deny the same representations it was a party to previously. Ambridge, so it was submitted, is therefore estopped from denying the truth of the representation made by Stanley that the Wellington Parade Property was held beneficially and that Stanley’s interest was held by means of his shareholding in Break Fast.
In consequence, it was further submitted by the Defendants that the effect of the Tauber Loan Agreement and the mortgage of the Stanley share under it, is that Ambridge is unable to make any claim in respect of any interest in the Wellington Parade Property.
In order to succeed in the defence, Oxley would need to establish the alleged estoppel in its favour. The estoppel could arise directly in favour of Oxley, or indirectly by it having taken an assignment of the Tauber Loan Agreement from its predecessor in title Tauber which was the subject of the alleged misrepresentation by Stanley as to the value of his Break Fast share.
In the light of the ultimate finding which is made as to the structure of the ownership of the interests of the parties in the Wellington Parade Property, I am satisfied that the representation made by Stanley to Czarny as to the intrinsic value of his share in Break Fast was indeed a misrepresentation. It was plainly untrue. As such, the conduct reflects poorly on the credit of Stanley.
However, I am not satisfied that Tauber relied upon the representation in entering into the Tauber Loan Agreement. No one from George Tauber Management Pty Ltd was called to give evidence. There was no evidence that the Tauber Loan would not have proceeded, had the mortgage of the Stanley share not been included. Further, there is no evidence that the loan provided by Tauber was not well secured at the time the Tauber Loan Agreement was entered into, even if the Stanley share in Break Fast was not included in the suite of securities.
Further, there is no evidence that Tauber suffered any detriment in entering into the loan transaction in the event that a finding is made that the Stanley share in Break Fast had no intrinsic sale value.
I am also satisfied that Oxley did not rely upon Stanley’s representation or any value placed on the security provided by the mortgage of his share in Break Fast in taking an assignment of the Tauber Loan Agreement on 2 July 2004. When it took the assignment of the Tauber Loan Agreement, Oxley, through Voukidis who was its sole director, must be taken to have had full knowledge of the fact, as I have found it to be, that Ambridge, and not Stanley, held an interest in the joint venture. The evidence is that, at least from the time when Jacobs of Ambridge advised Voukidis as to the basis upon which the accounts of Break Fast had been and were being prepared, by his email of 10 July 2001, Voukidis knew of the position taken by Ambridge as to the structure of the ownership of the Wellington Parade Property. Oxley could not therefore have placed any credible reliance upon any representation made by Stanley as to the value of his share in Break Fast or placed any value on the mortgage of Stanley’s share in Break Fast, at the time when it took the assignment of the Tauber Loan Agreement on 2 July 2004.
Further, I am not satisfied that Oxley’s purchase of the debt owed by St Leonards was other than the purchase of a valuable asset. Oxley now has an interest in the principal security provided under the Tauber Loan Agreement, namely the mortgage over the St Leonards Wellington Parade Property. There is no evidence that this security is not sufficient to meet whatever may be outstanding under the Tauber Loan or that it will not continue to provide adequate security for the loan. Accordingly, there is no evidence that Oxley will now or in the future suffer any detriment.
Indeed there is positive evidence that the Tauber Loan at all times was, and remains, well secured. It is apparent from the balance sheet of the balance sheet of the St Leonards Unit Trust, which apparently now owns the St Leonards Wellington Parade Property, that St Leonards has had net assets of almost $2 million or more since 2002 after taking into account secured loans to Perpetual Nominees and Tauber (later Oxley). It now has net assets of approximately $1.9 million. Furthermore, the St Leonards Wellington Parade Property has grown in value from 2002, when it was valued in the sum of $11 million, to a value of approximately $21.6 million as at 30 June 2009. Further, the balance sheet of Oxley shows that the secured loan to St Leonards is carried at the full value of its current principal, namely $3,961,403.98. There is no provision for doubtful debts indicating any likelihood of non-payment. On the basis of the evidence, the transaction entered into by Tauber, as assigned to Oxley was and remains fully secured, without any need to resort to the Stanley share in Break Fast.
No estoppel, as alleged by Oxley, therefore arose on application of the principles in Waltons Stores (Interstate) v Maher.[283]
[283](1988) 164 CLR 387 at 428–9 per Brennan J.
Secondly, the submission made by the Defendants that by reason of the Tauber Loan Agreement, and Stanley’s misrepresentation made in the course of its implementation, Ambridge is unable to make any claim in respect of any interest in the Wellington Parade Property, must be balanced by considering what is proportionate between the remedy sought and the detriment which is alleged to have been suffered. A court of equity is to go no further than is necessary to provide a remedy for the wrong committed.
As was said by Mason CJ in Commonwealth v Verwayen[284], in relation to the doctrine of equitable estoppel, in the following two passages:
Equity was concerned, not to make good the assumption, but to do what was necessary to prevent the suffering of detriment. To do more would sit uncomfortably with the general principle whose underlying foundation was the concept of unconscionability … equitable estoppel entitled the party only to that relief which was necessary to prevent unconscionable conduct and to do justice between the parties … the court should determine what was the minimum equity to do justice to the Plaintiff … Holding the representor to his representation is merely one way of doing justice between the parties.
In these circumstances, it would confound principle and common sense to maintain that estoppel by conduct occupies a special field which has as its hallmark function the making good of assumptions. There is no longer any purpose to be served in recognising an evidentiary form of estoppel operating in the same circumstances as the emergent rules of substantive estoppel. The result is that it should be accepted that there is but one doctrine of estoppel, which provides that a court of common law or equity may do what is required, but not more, to prevent a person who has relied upon an assumption as to a present, past or future state of affairs (including a legal state of affairs), which assumption the party estopped has induced him to hold, from suffering detriment in reliance upon the assumption as a result of the denial of its correctness. A central element of that doctrine is that there must be proportionality between the remedy and the detriment which is its purpose to avoid. It would be wholly inequitable and unjust to insist upon a disproportionate making good of the relevant assumption.
[284](1990) 170 CLR 394 at 411 and 413 per Mason CJ.
Deane J in Verwayen was of the same opinion when he said that ultimately:[285]
The question whether departure from the assumption would be unconscionable must be resolved not by reference to some preconceived formula framed to serve as a universal yardstick but by reference to all the circumstances of the case, including the reasonableness of the conduct of the other party in acting upon the assumption and the nature and extent of the detriment which he would sustain by acting upon the assumption if departure from the assumed state of affairs were permitted.
[285](1990) 170 CLR 394 at 445; cited in Giumelli and anor v Giumelli (1999) 161 ALR 473 at [42] per Gleeson J, McHugh, Gummow, Kirby and Callinan JJ.
In my opinion, the relief sought by Oxley is wholly disproportionate to the detriment suffered. Oxley seeks to deny Ambridge’s claim to its interest in the property of the Wellington Street Joint Venture. Yet its detriment, in accordance with my findings, is non existent. On the evidence, it is presently and has been at all times since taking the assignment of the Tauber Loan Agreement on 2 July 2004, well secured in relation to it. In these circumstances, the relief sought by Oxley would be inequitably harsh.
It was further submitted by the Defendants that even if a finding is made that the structure of ownership of the Wellington Parade Property was an unincorporated joint venture which included Ambridge, Ambridge’s conduct arising from it having relevant knowledge of the Stanley misrepresentation though its controlling mind, Stanley, and thereafter effectively acquiescing in the making of those representations was sufficient to give rise to an equitable assignment of Ambridge’s interest in the Wellington Street joint venture, so as to make good the representations made by Stanley.
I do not accept this submission. No such assignment arose, nor should any remedial assignment be ordered in equity.
In the first place, Ambridge gained nothing by the making of the Stanley misrepresentation. Its part in the Tauber Loan Agreement was to assume the liability of a guarantor of the Tauber loan. It was not a party to the St Leonards Joint Venture, and stood to gain nothing from the investment. Stanley invested in this joint venture through another company under his control, FBN Investments Pty Ltd.[286]
[286]Court Book pp.354–362; and 610–613.
It was submitted by Oxley that even if the Court finds the agreement in question was an unincorporated joint venture, Ambridge’s conduct in relation to the Tauber Loan, by its operative Stanley, is sufficient to give rise to an equitable assignment of its interest to it, so as to make good the representations made by Stanley and acquiesced in by Ambridge.
In my opinion, for the reasons already stated, the relief sought by Oxley in the nature of an equitable assignment of Ambridge’s interest in the Wellington Parade Joint Venture is wholly disproportionate to the detriment suffered by it.
I make the following further findings in relation to the Tauber Loan Agreement in respect of Taylor:
(a)Taylor, on behalf of Headland, did not have any knowledge of the Tauber Loan Agreement or of Stanley’s mortgage of his share in Break Fast as a security for the loan, at the time that these documents were executed by Stanley; and
(b)Taylor first learned on 23 January 2003 that Stanley had mortgaged his share in Break Fast as collateral security for the Tauber loan. At that time, he did not appreciate the significance of the mortgage of the Stanley share.
THE TAUBER GUARANTEE DEFENCE
The Defendants also relied upon a deed of guarantee dated 26 November 2001[287] (the ”Guarantee”). Pursuant to the Guarantee, Ambridge, Glenrowan Corporation Pty Ltd (Glenrowan) and Stanley guaranteed the Tauber loan. The Guarantee was executed by Stanley for and on behalf of Ambridge.
[287]New Supplementary Court Book p.296.
It was submitted that by operation of Clause 1 of the Guarantee, Oxley was entitled to recover from Ambridge the moneys payable by Stanley (or St Leonards) under the Tauber loan agreement to the value of Ambridge’s claim. Mine & Quarry Equipment International Ltd v McIntosh (as liquidator of) Mine & Quarry Equipment Pty Ltd (in liq)[288] was relied upon.
[288][2005] QCA 186 at [5].
It was further submitted that in the event that the interests are held by way of shares in Break Fast pursuant to the incorporated Joint venture contended for by the Defendants, then:
(a)Clause 5 provides that: “This Guarantee shall be considered to be additional to any other Guarantee or security either from the Borrower or any other person which the Lender now has or may hereafter take for the due performance of the covenants, conditions and stipulations of the Primary Security and the Guarantor shall not in any way claim the benefit or seek the transfer of any such security or any part thereof”;
(b)Clause 8 provides that: “Until the lender shall have received in full all monies owing or payable to the Lender by the Borrower under the Primary Security and until the Borrower has complied in full with all conditions stipulations and covenants on his part to be complied with or observed under the Primary Security the Guarantor is not entitled to on any ground whatsoever to claim the benefit of any security now or hereafter held by the Lender for the payment of the said moneys or compliance with the said conditions stipulations or covenants or either directly or indirectly to claim or receive the benefit of any dividend or payment out of the assets of the Borrower or of any person who may be co-guarantor or who may be liable under any security negotiable or otherwise now or hereafter held by the Lander as security for any such monies or the observance of such conditions stipulations and covenants ...” The clause further provides that the Guarantor cannot prove in the bankruptcy of the borrower in competition with the Lender.
In the alternative, the Defendants contended that even if, contrary to their submissions, the Court were to find that the interests were held by way of an unincorporated joint venture, Clause 20 of the Guarantee provides that:
To further secure the obligations of the Guarantor hereunder the Guarantor hereby charges in favour of the Lender all its rights, title and interest in any freehold property that it now has in the State of Victoria or New South Wales or that it may after the execution of this Deed of Guarantee acquire and the Guarantor hereby acknowledges that the Charge created shall give the lender a caveatable interest in all such freehold property.
The Guarantor further agrees to do all things reasonably required of them an execute all further documents in order to convert the Charge hereby created into a registered Mortgage or Mortgages and for such purpose it hereby irrevocably appoints the Lender, any Director of the Lender or Solicitor for the Lender from time to time to be its lawful attorney to sign on its behalf all documents required and to do all things required to convert the said Charge into a registered Mortgage or Mortgages.
Further, and in either case, the Defendant submitted Clause 11 provides that “the Guarantor hereby waives and relinquishes all rights of ownership inconsistent with the provisions of this Guarantee”.
The Defendants concluded their submission with the contention that the intention of these clauses collectively is to preclude Ambridge from asserting any interest in the assets of the joint venture that would rank ahead of the lender (now Oxley), until such a time as the Tauber loan has been repaid.
The Defendants’ submission on the Guarantee may be disposed of in short compass.
In the light of my findings that there existed an unincorporated joint venture, the only clause of the Guarantee relied upon by the Defendants was Clause 20. This clause of the Guarantee does not preclude Ambridge from doing anything. It merely gives Oxley a charge over Ambridge’s assets, which charge will be dealt with according to the priority of Ambridge’s creditors, including secured creditors. Oxley cannot rank ahead of a secured creditor such as the CBA or H2O.
Further, the clause is not intended to deny to Ambridge any asset in property which might be made the subject of a charge. On the contrary, the purpose of Clause 20 is to enable Oxley to charge Ambridge’s property to better secure the Tauber Loan. The underlying commercial intent of the clause is to enhance the effectiveness of the Guarantee as a security. This purpose is best served by preserving, rather than diminishing, the portfolio of assets of the guarantor Ambridge, to which a charge might attach.
THE STANLEY BANKRUPTCY DEFENCE
It was common ground that Stanley was bankrupted pursuant to a sequestration order made against him on or about 17 May 2005.
Accordingly, on the case of the Defendants, any interest retained by him in his share in Break Fast, vested in his trustee in bankruptcy.
This may be technically correct. However, a consequence of my finding that there was no incorporated joint venture is that the share is worth no more than the paid up capital of $2.00 which is represents. The share gives no entitlement to any interest in the Wellington Parade Property, and cannot be valued on the basis that it does.
THE OXLEY MORTGAGE DEFENCE
By reason that he mortgaged his share in Break Fast to Tauber, which subsequently assigned its interest in the mortgaged share to Oxley, the Defendants claim that Oxley now holds the legal interest in the share and holds that interest in priority to Stanley’s trustee in bankruptcy.
This again may be technically correct. However, by reason of my finding that there was no incorporated joint venture the share is worth $2.00 and gives no entitlement to any interest in the Wellington Parade Property, and cannot be valued on the basis that it does.
CONDUCT OF STANLEY AND ESTOPPEL
I accept that, at all relevant times Stanley was the sole shareholder, a director and the controlling mind of Ambridge.
The Defendants contended that, at all times, their dealings with Stanley were on his own behalf and that Ambridge was no more than the vehicle through which Stanley discharged his personal obligations.
The Defendants submitted further that if, contrary to their case, the Court finds that Ambridge and not Stanley, was the party to the joint venture agreement, then the necessary consequence is that Stanley’s only relationship with the joint venture was as an officer, shareholder and agent of Ambridge. In the premises, it was submitted, Ambridge is necessarily bound – in equity - by Stanley’s (or its own) conduct including:
(a) Mortgaging his share in Break Fast to George Tauber Management for value;
(b)Representing to financiers in applications from credit and the accounts of Break Fast that Break Fast was an operating company that had assets and liabilities, income and expenses and held the Property in its own right in order to obtain finance; and
(c)Misappropriating funds from Break Fast both directly and through Ambridge.
I do not accept these submissions.
In the first place, Stanley was a director of the managing entity of the Wellington Parade Joint Venture, Break Fast, until his resignation on 12 December 2002. As such he owed duties in that capacity to Break Fast, and through it, to the joint venture.
Secondly, Ambridge gained no benefit itself from the conduct of Stanley relied upon by the Defendants. Either Stanley personally, or other entities under his control, as in the case of FBN Investments Pty Ltd in relation to the St Leonards Joint Venture, profited from Stanley’s transgressions.
I find in these circumstances, that the conduct relied upon by the Defendants was not conduct undertaken by Stanley on behalf of Ambridge, but conduct undertaken either on his own behalf or that of his other companies, including FBN Investments Pty Ltd.
No estoppel of the kind contended for, therefore arises against Ambridge by reason of this conduct.
In any event, even if it did, I would find that the remedy sought by the Defendants, namely denial of Ambridge’s interest in the Wellington Parade Joint Venture, would be out of all proportion to Ambridge’s alleged involvement in the transgressions perpetrated by Stanley.
RELIEF AND ORDERS
I make the following orders:
(a)It is declared that the Plaintiff holds a 25% interest in the Wellington Parade Joint Venture under the terms of an enforceable contract of joint venture between the Plaintiff, Ambridge Investments Pty Ltd (“Ambridge”), the Third Defendant (“Careerpath”), Fourth Defendant (“IMF”), the Fifth Defendant (“C & O Voukidis”) and the Sixth Defendant (“Break Fast”) in the terms of the written joint venture agreement executed by Break Fast and Ambridge and provided to the First Defendant on 8 October 2002.
(b)It is further declared that the Plaintiff holds a 25% beneficial interest in the Wellington Parade Property pursuant to an express trust of which the Sixth Defendant (“Break Fast”) is the trustee.
It has been conceded by the Defendants that all parties are entitled to the taking of accounts between them.
I will adjourn the proceeding to deal with further orders and directions which ought to be made to dispose of the balance of the proceeding.
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